Grading the budget deal

The budget deal reached by congressional leaders has much to recommend it. Its biggest virtue, assuming it’s passed by Congress and signed into law by President Obama, is that it will end the threat of a national default. The federal debt ceiling – limiting the Treasury’s ability to borrow – will be waived until March 2017.

Similarly, the possibility of a government shutdown, while not eliminated, should be vastly reduced, because Congress will have an agreement on total spending. This makes it easier to pass individual spending bills.

There are also other plausible advantages. Spending caps regarded by many as too tight on both defense and nondefense outlays have been relaxed. The spending caps will increase $50 billion in fiscal 2016 and $30 billion in 2017. To minimize the impact on budget deficits, the deal makes modest cuts in other programs and raises government fees and taxes.

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Unfortunately, these virtues come with some glaring vices that lower the deal’s overall grade.

The largest is the absence of any serious public debate. What this country desperately needs – and has avoided for decades – is a genuine debate over the role of government. In the 1950s and 1960s, this seemed less important, because rapid economic growth promised steady increases in tax revenues to pay for new programs. But now, slower economic growth and an exploding elderly population, raising the costs of Social Security and Medicare, have created a yawning gap between what people expect from government and what they’re willing to pay in higher taxes. Hence, endless budget deficits.

Who deserves government help? What programs are justified? There is little effort to persuade Americans to reconcile their contradictory preferences for higher spending and lower taxes. Not surprisingly, this deal was negotiated in secret by House Speaker John Boehner, R-Ohio, House Minority Leader Nancy Pelosi, D-Calif., Senate Majority Leader Mitch McConnell, R-Ky., and Senate Minority Leader Harry Reid, D-Nev. Another opportunity to shift public opinion was lost.

The result is that the congressional leaders’ package is modest in its ambitions and resorts to “the flagrant use of budget gimmicks” – to quote the Committee for a Responsible Federal Budget (CRFB), a nonpartisan group. As for limited ambition, the congressional plan barely deals with the swelling costs of retirees, who now represent the largest source of federal spending. (In 2014, Social Security and Medicare alone cost $1.45 trillion in a $3.5 trillion budget.)

As for gimmicks, the largest is a budget category known as Overseas Contingency Operations – or “OCO.” Originally, OCO involved spending for foreign conflicts and the “war on terror.” Because these amounts cannot easily be predicted, OCO is not subject to congressional spending caps. This initially made sense, but over time, OCO has been corrupted. It’s increasingly used to fund ordinary spending, defense and nondefense. It’s an escape valve. In the congressional deal, OCO spending grows by $31 billion over two years.

All told, the agreement would raise government spending by about $111 billion over two years compared with current law. That’s the sum of the $80 billion in relief from spending caps and the $31 billion in higher OCO. Together, the increase is about 5 percent over current levels.

What makes the deal especially confusing is that it aims to satisfy conflicting objectives – raising spending and containing the deficit. In the end, the deficit took a back seat. To be sure, some of the costs are covered by budget offsets: higher premiums for the Pension Benefit Guaranty Corp.; oil sales from the Strategic Petroleum Reserve; lower farm subsidies. But the extra OCO spending isn’t offset and, together with higher interest costs on the extra spending, only about half the deal’s total costs are offset, estimates Marc Goldwein of the CRFB.

In our messy political world, this is a messy deal. We’re better off with it than without it, but most of the big issues are deferred. The B-minus is generous.